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More Debt, Fewer Jobs: How the Candidates Plan to Solve Rising Costs of College

October 18, 2012 at 12:00 AM EST
Student debt is outpacing credit card debt. With unemployment high for young people, 10 percent of graduates have defaulted on loans within two years of graduation. Judy Woodruff talks American Council on Education's Terry Hartle and Cato Institute's Neal McCluskey about what President Obama and Mitt Romney propose as solutions.
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JUDY WOODRUFF: There was fresh evidence today of just how expensive college has become and how fast student debt is piling up. It came in the latest look at the bill that comes due once diplomas are handed out.

The numbers are more daunting than ever for newly minted college graduates. Data released today shows two-thirds of the class of 2011 had loan debt that averaged $26,600. That was up 5 percent from the previous year. The Institute for College Access and Success, based in California, surveyed more than 1,000 public and private nonprofit four-year colleges.

It also cited studies showing that more than one-third of recent graduates have jobs that do not require a college degree at all.

Indeed, in Tuesday’s presidential debate, Republican Mitt Romney pointed to other research that the disparity between jobs and degrees is even worse.

MITT ROMNEY (R): We have to make sure that we make it easier for kids to afford college and also make sure that when they get out of college, there’s a job.

With half of college kids graduating this year without a college — excuse me, without a job. And without a college level job, that’s just unacceptable.

And likewise you’ve got more and more debt on your back, so more debt and less jobs.

JUDY WOODRUFF: In fact, student loan debt now outpaces credit card debt in the United States and by some measures exceeds $1 trillion.

And in a new TIME magazine poll conducted with the Carnegie Corporation, 80 percent of those surveyed said many colleges are simply not worth the cost; 89 percent said higher education is in crisis.

President Obama has responded by touting his expansion of the federal Pell Grant program, as he did again today in Manchester, N.H. The GraniteState has an average of almost $35,000 in student loan debt, highest in the country.

PRESIDENT BARACK OBAMA: Today, because of the actions my administration took, millions of students all across the country are paying less for college.

(CHEERING AND APPLAUSE)

BARACK OBAMA: We took a system that was wasting tens of billions of dollars on banks and lenders. We said, let’s cut out the middleman. Give the money directly to the students. And, as a consequence, young people are getting a better deal.

JUDY WOODRUFF: Romney claims the additional federal aid actually prompted colleges to raise tuition. He has said that he thought the president increased Pell Grants too much. But in Tuesday’s debate, Romney said he wanted to grow the program’s funding.

Meanwhile, defaults keep climbing. The government estimates almost 10 percent of recent federal student loan borrowers defaulted within two years of graduating. A separate report from the College Board comes out next week. It’s expected to show slightly better numbers than the ones reported today.

For more on why student debt is growing and how the candidates are approaching this issue, we turn to Terry Hartle. He’s senior vice president for government and public affairs at the American Council on Education. It’s an association of some 1,800 accredited colleges and universities.

And Neal McCluskey, he’s associate director of the — for the Center for Educational Freedom at the Cato Institute, a libertarian public policy research center.

Gentlemen, we thank you both for being with us.

So let’s start by talking about why student debt has grown so large. We just heard the numbers, Terry Hartle. And behind it, the cost of higher ed, the cost of getting an education is shooting up. Student loan debt is going up — is growing. Why?

TERRY HARTLE, American Council on Education: Well, the biggest reason is because states are cutting operating support for their public colleges and universities; 80 percent of public — 80 percent of college students go to public institutions.

 

States pressed by the economy have been cutting operating support for those institutions and deliberately letting tuition go up to make up the difference.

So for most Americans, it’s state budget cuts that results in public sector tuition increases. Borrowing is often used to make up the higher costs that students are facing.

JUDY WOODRUFF: Neal McCluskey, what do you see as behind this higher cut?

NEAL MCCLUSKEY, Cato Institute: Right. Well, so in the short term, there is no question that there have been reductions in state aid. And if you look per pupil, that’s true.

But the long-term problem, the real root problem is clear. And that is when the federal government will provide more and more aid if prices go up, colleges raise their prices.

It’s the same if I have been buying a hot dog for a dollar and suddenly the government gives me and everybody else buying a hot dog another dollar and my vendor knows it, he will charge me $2.

And so that’s why we have seen a huge increase in the sticker price and part of that aid comes in the form of loans.

JUDY WOODRUFF: So you’re saying it’s the very act of the government helping that has made the cost go up.

How do you see that?

TERRY HARTLE: Not true.

This is an issue that’s been studied extensively. The most comprehensive studies have found no relationship between changes in college prices and federal student aid. These are studies by the U.S. Department of Education, by the congressional commission on the price of higher education, and most recently in a book published by Oxford University Press called “Why Does College Cost So Much?”

Some smaller studies have suggested there might be a relationship, but they also suggest different relationships. In one study, two-year tuitions goes up, four-year tuition goes down. In other cases, you get different results.

So what you have got are a lot of studies, most of which don’t put you in a direction that allows you to say what is going on with the certainty that Neal wants to provide.

JUDY WOODRUFF: Neal McCluskey, you’re shaking your head the whole time he’s talking.

NEAL MCCLUSKEY: Yes, right, because there are many studies that actually show that increased aid is taken by colleges in higher prices.

And the reality is most of the studies that don’t show it look at pretty short time frames. And I’m not arguing that every year if aid goes up a dollar, they charge a dollar more. But putting all these subsidies in the system, they say, look, we can raise prices and students will demand more things, because they command more money to pay for it.

And college presidents will even tell you, we have these amenities arms races, we spend more on fancy food because that’s what students demand.

JUDY WOODRUFF: You want the respond one?

TERRY HARTLE: No question that colleges and universities are trying to ensure that the students have a very desirable experience. Colleges are in competition with each other for students.

So if you go to a college or university and you see old dormitories, you don’t see good recreational facilities, you see a library that shows a lot of wear, you’re probably less likely to enroll at that institution.

So colleges and universities have been improving their physical plants pretty consistently. That’s part of being a competitive industry.

JUDY WOODRUFF: Faculty salaries.

TERRY HARTLE: Faculty salaries are an issue. Faculty salaries have not gone up as much in the last decade as they had in the previous decade.

JUDY WOODRUFF: All right, well, let’s — let me turn to this question of what the candidates are proposing.

Neal McCluskey, when you look at what the president has done, you heard — he talks about taking the middleman out, letting the government be the direct sponsor of the student debt. How do you size up the president’s approach?

NEAL MCCLUSKEY: I don’t think it does much good.

I will differ with the Romney campaign, and they’re saying that that’s a federal takeover of student loans, that they have gotten rid of the banks that used to be part of the federal loan system.

But that doesn’t make sense. The federal government has dominated student aid for decades. And before, they were just sort of funneling this money through private banks.

I would also say that the problem, though, cannot be narrowed down to what states are spending because for every dollar a state has reduced per pupil their aid to their colleges, the colleges raise their prices $2. And that’s why you have got to address student aid from the federal government.

JUDY WOODRUFF: And so the Pell Grants that the president championed, you’re saying they’re doing what, that they should do what, that that’s been the wrong approach?

NEAL MCCLUSKEY: Right, not to say that Pell Grants themselves are the only thing responsible for the increase. In fact, the subsidized federal loans go to more high-income people. It’s all part of the overall student aid picture.

JUDY WOODRUFF: Terry Hartle, how do you see the president’s approach?

TERRY HARTLE: Well, I think fundamentally Neal is wrong on this.

You can either prove unambiguously that federal aid increases the price of higher education or you can’t. If you can’t, putting all of your emphasis as cutting student age as a way of lowering the cost of college is destined to fail.

Fundamentally, colleges and universities want loans to be available to their students, and they want them available with a good interest rate. Doesn’t matter that much to colleges and universities whether the money comes from the government, the banks, or Dunkin’ Donuts.

They just want the money to be there. The federal government is running a pretty smooth student loan program right now. I’m not sure why you would change it.

JUDY WOODRUFF: So what about Gov. Romney’s approach, which is — well, actually, we talked about what some would see as a contradiction. He was earlier saying the Pell Grant program, the money should be scaled back.

And he said in the debate the other night the Pell Grant program should grow. How do you see the Romney…

NEAL MCCLUSKEY: Yes, it’s hard to nail down.

So some stuff he put out at the beginning of the campaign, he said basically what I have said, which is that it’s very clear the aid enables colleges to raise prices. In fact, Vice President Joe Biden said that and got into a lot of trouble.

Since then, candidate Romney has really kind of stepped back and said, look, I’m not going to attack Pell Grant funding, I’m not going to attack education funding.

So it’s hard to know, because education is kind of an emotional issue that you don’t want to be the person who says, I’m going to cut it.

JUDY WOODRUFF: How do you read his approach?

TERRY HARTLE: It’s not clear what to make of Gov. Romney’s approach.

Pell Grants is a popular program with both Republicans and Democrats. Ninety percent of the money goes to families with income below $40,000, and it’s a voucher, so the individual decides where to spend it. So it’s been — had bipartisan popularity for decades.

And I suspect Gov. Romney in his focus groups and his polling is hearing from families that they’re concerned about paying for college, helping their kids go to college, and he’s responding to that.

JUDY WOODRUFF: So, a final word from the two of you.

What do you see as the correct approach going forward, Neal?

NEAL MCCLUSKEY: It’s got to be to reduce the aid.

You start with loans that are not focused at all on low-income people, that anybody can get regardless of income.

We have to start looking at some sort of evidence that a student who gets this — these loans or this aid can succeed in college. That’s what has to happen, because the evidence is really quite clear: Aid enables colleges to raise prices at extreme rates.

JUDY WOODRUFF: What do you think the right…

TERRY HARTLE: Well, I have indicated that I think Neal is fundamentally wrong in his assertion.

I think that if you reduce student aid, fewer people go to college, we have fewer individuals with post-secondary education credentials.

In an era in which we’re increasingly concerned about our ability to compete globally, we ought to be looking for ways to get more Americans into and out of college, not looking to cut student aid because we think it will lower college prices.

JUDY WOODRUFF: So keep going to Pell Grants, but in a targeted way.

Terry Hartle, Neal McCluskey, we thank you both.

NEAL MCCLUSKEY: Thanks.

JUDY WOODRUFF: And we have much more about student debt online. You can use our student loan calculator. You can get information about a new repayment plan, read profiles of people coping with educational debt burden, and watch past reports by NewsHour economic correspondent Paul Solman — all that on our Making Sense page.